At present, markets seem to be balancing optimism (strong earnings, potential rate cuts and innovation tailwinds) with caution (high valuations of tech-stocks, uncertainty about Fed timing and government shutdown). The recent pullbacks can be termed as a normal “reset” rather than a full-blown reversal. However, navigating such a situation to select stocks and generate steady returns is difficult for retail investors.
Hence, a traditional way of picking stocks is a good idea now. Sales growth provides a more reliable view for evaluating stocks compared with earnings-focused metrics. Stocks like Vertiv Holdings Co VRT, Universal Health Services Inc. UHS, Aptiv PLC APTV,
Ameren Corporation AEE and FirstCash Holdings, Inc. FCFS are worth betting on.
When evaluating a company, sales growth is mostly preferred over earnings. Constant sales growth reflects the actual demand for a company’s products or services. Focusing on sales also offers investors greater visibility into the durability of a company’s business model. The company that can expand its revenues during periods of economic turmoil reflects pricing power, competitive advantages and the ability to capture market share.
Meanwhile, earnings can be distorted by one-off charges, cost-cutting, accounting adjustments or temporary margin expansions, making them less indicative of a company’s underlying trajectory.
Additionally, sustainable sales growth often translates into stronger and more predictable cash flows, providing management with the financial flexibility to reinvest, all without undue reliance on debt. Robust cash reserves and steady cash flow give companies the flexibility to counter challenges, pursue growth opportunities and maintain operational stability even in uncertain times.
To shortlist stocks with impressive sales growth and a high cash balance, we have selected 5-Year Historical Sales Growth (%) greater than X-Industry and Cash Flow of more than $500 million as our main screening parameters.
But sales growth and cash strength are not the absolute criteria for selecting stocks. Hence, we have added other factors to arrive at a winning strategy.
P/S Ratio less than X-Industry: This metric determines the value placed on each dollar of a company’s revenues. The lower the ratio, the better it is for picking a stock since the investor is paying less for each unit of sales.
% Change F1 Sales Estimate Revisions (four weeks) greater than X-Industry: Estimate revisions, better than the industry, are often seen to trigger an increase in stock price.
Operating Margin (average last five years) greater than 5%: Operating margin measures how much every dollar of a company’s sales translates into profits. A high ratio indicates that the company has good cost control and sales are increasing faster than costs — an optimal situation.
Return on Equity (ROE) greater than 5%: This metric will ensure that sales growth is translated into profits and the company is not hoarding cash. A high ROE means that the company is spending wisely and is in all likelihood profitable.
Zacks Rank less than or equal to 2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform, irrespective of the market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vertiv, based in Westerville, OH, is a leading global provider of critical digital infrastructure and services for data centers, communication networks and commercial and industrial environments. VRT serves essential industries, including cloud computing, financial services, healthcare, transportation, manufacturing, energy, government, education, retail and social media.
VRT’s expected sales growth rate for 2025 is 27.5%. Vertiv sports a Zacks Rank #1 at present.
Universal Health Services, headquartered in King of Prussia, PA, owns and operates (through its subsidiaries) acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. UHS, through its subsidiaries, operates more than 355 inpatient acute care hospitals and 60 outpatient and other facilities in 39 states, Washington, DC, the United Kingdom and Puerto Rico.
Universal Health Services’ expected sales growth rate for 2025 is 9.7%. UHS currently sports a Zacks Rank #1.
Based in Switzerland, Aptiv is one of the leading global technology and mobility companies that mainly serves the automotive sector. APTV delivers end-to-end smart mobility solutions, active safety and autonomous driving technologies and provides enhanced user experience and connected services.
Aptiv’s sales are expected to rise 2.9% in 2025. APTV carries a Zacks Rank #2 at present.
Based in St. Louis, MO, Ameren is a utility company, generating and distributing electricity and natural gas to residential, commercial, industrial and wholesale end markets in Missouri and Illinois. AEE serves nearly 2.5 million electric and more than 900,000 natural gas customers.
Ameren’s expected sales growth for 2025 is 16.2%. AEE, at present, carries a Zacks Rank #2.
Fort Worth, TX-based FirstCash Holdings operates retail pawn stores. FCFS operates through three segments: U.S. Pawn, Latin America Pawn and Retail POS Payment Solutions segments.
FirstCash Holdings’ sales are expected to grow 5.3% in 2025. FCFS carries a Zacks Rank #2 at present.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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Ameren Corporation (AEE) : Free Stock Analysis Report
Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
FirstCash Holdings, Inc. (FCFS) : Free Stock Analysis Report
Aptiv PLC (APTV) : Free Stock Analysis Report
Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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